Don't Bet The Farm On Jamie Dimon And JPMorgan Just Yet

Jamie Dimon, CEO of JPMorgan Chase & Co (JPM) was in the hot seat before the U.S. House Financial Services Committee on Tuesday. Last week, before the Senate Banking Committee, I loved the way he took on Sen. Jeff Merkley (R-Ore.).

Dimon literally said that JPMorgan did everyone a favor by taking the TARP money. Humor and irony aside, Mr. Dimon also said that he was more worried about Europe than the trading loss the bank recently suffered.

"I am far more worried about Europe than I am about this trading position," said Mr. Dimon.

The share price of JPM was above $44 on May 1, 2012. After the bank announcement the $2 billion loss, the stock saw a low of $30.83 intraday on June 4, a drop of 30% in value. Closing at $35.38 on Tuesday, bottom-fishers have been rewarded with a bounce of nearly 15%. Fellow too-big-to-fail members Citigroup, Bank of America and Morgan Stanley have experienced similarly sized rebounds in their share prices.

Problems still loom, however, and if Mr. Dimon is worried about Europe, how badly can his bank get hurt should things boil over in Europe? It is difficult to say, as an outsider. One thing is certain. The European crisis is far from over. I can, however, do some Elliott Wave analysis of the JPM chart to come up with a road map for the stock price.

Take a look at the following chart.

From the 2009 low of around $15, the stock had rallied to a high of just above $48. This move had to be corrected. We got a nicely tradable three-wave downmove where wave 'c' was related to wave 'a' by the Fibonacci ratio of 161.8%. We then got a sharp recovery that went quite close to the preceding high, but failed at around $46.80.

The down move that followed accelerated on the back of the trading loss reported in May, and by trading below the peak of the first wave up the market is signalling that we will get one more bout of selling. The minimum target would be placed at $26.20 at which point the second set of abc would be equal to the distance travelled by the first set.

Given the possibility of a 25% loss from even the current levels, investors should be careful not to get overly bullish as the stock makes a run to overtake its 200-day moving average.